Tke Meaning of 
Business 



— OR- 



Tbe Science of Service 



By Transfw 



Published by 

Tke American Credit-Inclcmmty Co. 

of New York 

With the pemiiasion of the Author. 



Copyrighted 1918 

by 

Tte American Credit-Indemnity Co. 
of New York 



1 he MeaniTicf 


of 


Business 




— OR — 




Tne Science of Service 




Published by 




Tke American Credit-Indemnity Co. 




of New York 




\Vitb tbe perraission of tbe Autbor. 





A^ 

^^K 



THE ESSAY BEGINS ON PAGE 9 

Economics, or Political Economy, is viewed generally 
as a dull and ponderous subject, except by Professors. 
The reason doubtless is, that some Political Economists 
seem to have the notion that they are writing always to 
other Political Economists, and thus sacrifice simplicity 
and clearness for "scientific analyses." 

Political Economy is a very simple exposition of 
Successful or Scientific Service, following causes to their 
effects upon the pursuit of wealth. 

As efficiency of service is the measure of success, and 
as this Essay on the Meaning of Business, or The Science 
of Service, tells so simply what efficiency is, we publish 
it for complimentary distribution. 

It was written by a man of rare attainments, who has 
had an unusually successful career. 

We feel confident you will find pleasure and profit in 
reading it. Additional copies may be had, upon request, 
although only a limited supply has been printed. 

THE AMERICAN CREDIT-INDEMNITY CO. 

Of New York - - - E. M. TREAT, President 

CREDIT INSURANCE 

HOME OFFICE . . . _ ST. LOUIS, MO. 

1918 



People must have sense enough to understand what they 
do and why they do it. 



The man who understands that he must serve in order to 
thrive will know what to do and what not to do. 



To do an unuseful thing is to fail; to do a useful thing is 
to thrive. 



Do what the community needs to have done. 



A man makes what he sells and buys what he needs. The 
wise thing to do is to make, in abundance, what people need. 



No man can help himself without helping others. 



Business is a profitable beneficence. 




CREDIT INSURANCE. 

ITS SERVICE TO BUSINESS. 

|HE object of the writer of this pamphlet was to 
show that men thrive by mutual service and not 
by mutual spoliation. He justifies the prosperity 
of those engaged in making or distributing goods 
by showing the contribution of each to the general welfare. 
The American Credit-Indemnity Company accepts the 
challenge conveyed by his argument and offers for the 
consideration of business men the following vindication of 
its usefulness. 

The problems of business are numerous and perplexing. 
The seller and buyer seldom stand face to face. The seller 
must rely in marketing his goods upon capital and credit 
ratings which in the nature of things cannot be so accurate 
as to preclude mistakes. The unexpected is always happen- 
ing. A buyer may be prosperous today and bankrupt 
tomorrow; and however efficient a credit department may 
be. losses on sales are inevitable. The aggregate liabilities 
of firms which have become bankrupt in a single decade 
m the United States have amounted to about two billion 
three hundred million dollars. 

Failures are due to all sorts of causes: to inexperience, 
insufficient capital, over-buying, false credit, speculation, 
fraud, a violent fall in prices, seasonal changes, crop 
failures, neglect of business, extravagance, competition, 
endorsing for others, or a commercial crisis; and any 
shocking disaster of any sort, or any sudden derangement 
of commercial affairs from any cause may arrest a tide of 
prosperity. Mortality in business is constant, if variabl 
The percentage of failures among those engaged 

5 



le. 
in 



business is greater than the mortaUty among men. No 
man is wise enough to guard against all the risks which 
he must assume. 

Because a merchant must assume these risks, the 
American Credit- Indemnity Company was organized for 
his protection. The company affords indemnity for all 
losses incurred on goods sold within the period covered by 
its bond in excess of those which are normal and expected, 
and thereby gives to mercantile affairs a stability and 
security which otherwise they must lack. 

It does more. It helps the merchant to sell goods 
wisely, by telling him where he is likely to lose and where 
he is relatively safe. It helps to reduce his normal loss; it 
helps his credit department; it assists with past-due 
accounts; it obviates friction between him and his delin- 
quent customers; and it affords to him a mass of 
information which he will find of great use in his business. 

If you ask how it does these things, it replies that its 
records cover a period of twenty-five years and contain 
not the experience of one merchant engaged in one busi- 
ness, but the experience of many thousands of merchants 
engaged in all sorts of business in every part of the country. 
The claims filed with it growing out of unpaid accounts 
since its business was established now aggregate more 
than two billions of dollars. It has sifted these records and 
from them derived useful information with respect to the 
causes of various failures at various times under various 
circumstances. From them it has derived experience 
tables which show the actual risks in selling, what the 
average loss is on credit ratings A, B, and all others. The 
premiums of the company are adjusted to these risks, and 
by the emphasis of the charge upon each, we warn against 
the greater risks. We help the credit department to under- 

6 



stand what to do, by showing the merchant where his 
losses occur; and we help all business by compelling it to 
be more prudent where prudence is requisite. We mitigate 
the friction which results from an attempt to enforce the 
collection of an overdue account by intervening between 
the merchant and his customer; and we reduce the mer- 
chant's normal loss by collecting in time — not after but 
before failure. 

We carry into business a promise of indemnity against 
the unexpected, and thereby afford comfort and serenity 
and security at a cost which is far less than the benefit 
conferred and far less than the losses avoided. We per- 
form in fact for commerce the same sort of service that 
military discipline does for young men. The average 
mortality among men between twenty-one and thirty-one 
is eight thousand in a million each year; in the army it is 
expected to be within four to six thousand in a million. 
The average business mortality is about ten thousand in 
each million; among those who comply with the terms 
and instructions of our policy it will be reduced in the 
same proportion. 

We have a collection department operated under the 
provisions of the policy, which provides that past due 
covered accounts shall be delivered to us for collection 
within a stated time; and we agree that the filing of such 
accounts shall have the effect of proving them against our 
liability under our bond. We instantly proceed to collect 
these accounts as soon as possible, and before the embar- 
rassment of the customer has become too serious to be 
coped with ; and in this manner we protect the seller against 
loss and ourselves against liability. In a single year we 
have so collected many thousands of dollars which our 
policy-holders were unable to collect. We have saved them 

7 



that much and at the same time helped their customers to 
be prompt and understand the sanctity and binding effect 
of a promise. 

These services we offer in return for a charge which is 
less than their value and less than we save for the man 
who pays it. 

Our business is also serving, and our serving is not 
capricious and unintelligent, but a scientific service based 
upon reliable and very numerous data which are con- 
stantly sifted for information and suggestion. Our 
resources show our strength and our policies show the 
service from which those resources are derived. 

We do a general good and a special good. We are grad- 
ually teaching buyers to be prompt in payment and we are 
attempting at the same time to show sellers what is 
prudent and what is imprudent selling. 

Business, as the writer of the pamphlet shows, concerns 
itself with the making and distribution of goods. We 
furnish a very important aid to distribution: we prevent 
waste; we indemnify against loss; we diminish loss; — and 
because we help both producer and consumer of goods, 
we share with the business man in the fruits of his benefi- 
cence. We diminish the cost of distribution. 

The American Credit- Indemnity Co. 
of New York 

By E. M. TREAT. President 



The Meaning of Business 



OR — 




The Science of Service 



I HE peace and good will of society depend upon 
tradition, and that tradition upon experience; 
but the connection between tradition and exper- 
ience is not always evident. We perceive the 
value of marriage, but cannot always vindicate it; we 
feel the need for a State, but cannot justify its encroach- 
ments; we tolerate manners and institutions not because 
we understand and approve them but because we are 
accustomed to them. 

Among the institutions of society, none is more fre- 
quently attacked and none is harder to defend, than 
private property. We think it is indispensable but we 
cannot explain why. We have no answer ready for him 
who questions the justice of an uneven distribution of 
wealth; we cannot tell why this man should be rich 
and that man poor, nor even explain how one man can 
become rich save at the cost of his neighbors. When 
we speak of wealth, or taxes, or capital, or wages, or 
profit, we use the words in a vague sense and no two 
men mean the same thing. Yet we should agree with 
respect to these things. They are right or wrong, good 
or bad. If they are good, they should be so clearly 
justified as to convince those who are perplexed; if they 
are wrong, they should be got rid of. Civilization today 
rests upon private property. Men co-operate to produce 
it. Some men have more, some less. Why? 

Q 



Political economy concerns itself with such problems. 
For some reason, difficult to discover, it has fallen into 
disrepute. Men say witty things of it, as that it is a dismal 
science and the gospel of selfishness; and few attend to its 
instruction. Yet it has occupied the thought and time of 
many very able men. Its doctrine is simple and intelli- 
gible: it deals with familiar facts; and what it says is inter- 
esting and helpful. I have tried to understand why so 
useful an instruction is disregarded and have been led to 
believe that the busy man has no time to give to the refined 
and discriminating thinking of one whom he deems theo- 
retical and sophistical. Each has a peculiar vision and a 
special experience; and neither can quite understand the 
other. In common parlance, every word is freighted with 
experience and that experience is shared by those who use 
it. The political economist begins by inventing new words 
or twisting old ones into a strange significance in order that 
he may express and fix a notion which is peculiar to him- 
self. We are too impatient for such instruction. It oc- 
curred to me that I might extract from the literature of 
political economy certain of its salient and most useful 
doctrines and translate them into language which should 
be intelligible to every man; and this essay is the result 
of that consideration. 

At the outset 1 must say a few words in explanation of 
the objects and pretensions of the science. It is not and 
does not pretend to be a moral science. It does not teach 
dut y nor inculcate philanthropy, nor concern itself with 
the benevolent and most worthy motives of private con- 
duct. It is concerned with business only, with that which 
men do in order that they may live; with the production 
of wealth and its distribution. It observes, analyzes and 
explains. It assumes nothing. It deals with known and 

10 



familiar facts. If it offers an explanation of those facts, 
it offers one which is consistent with all of them, and 
attempts to show their mutual relationship and influence. 
Its value is found in the broadness of its view. It con- 
siders not one fact only, but every related fact: effect as 
well as cause, cause as well as effect; use and function, 
purpose and consequence; exception and rule. What then 
are the facts with which it is concerned? 

This is a busy world. Men move to and fro incessantly, 
each intent on his own affairs. A vast majority of them 
work continually. They differ in character and capacity, 
and perform various labors. Somehow, they have divided 
themselves into groups: we have farmers and millers, 
miners and blacksmiths, tanners and shoemakers, mer- 
chants and carriers, bankers and brokers, each of whom 
does some special work. No one seems to work for him- 
self, but everybody for somebody else. What one makes 
he sells; what he needs he buys. All are engaged either 
in the production or distribution of wealth, and the labor 
of all is a co-operative labor. Each depends upon the 
other: the maker upon the consumer, the seller upon the 
buyer, the borrower on the lender. The product of a joint 
or co-operative labor is distributed in a conventional way 
to each in accordance with some rule or practice which 
has grown up among us: one receiving wages, another 
profits and another interest. Trade is everywhere. We 
have established markets and . exchanges where we get 
what we need and dispose of what we have. In some 
manner the right articles are brought forward in the right 
quantities, and no need of a luxurious people remains 
unsatisfied. There is work for everybody willing to work. 
The prosperity of one man does not seem to diminish the 
goods of another. Poor people are continually forging to 

11 



the front. Riches are soon dissipated. We co-operate not 
because we must but because we choose to do so: yet by 
his work the individual seeks not another's good but his 
own. Everybody seems selfish in the sense that his motive 
is selfish. If he serves, he serves for pay; if he sells, he 
sells for profit. These are the facts which confront us: 
the selfishness of mankind; the spontaneous division of 
labor; the co-operative character of all industry; the 
mutual dependence of men; the unequal distribution of 
wealth; and with these facts political economy is con- 
cerned. What is its explanation? 

Assuming, as it must, that all men are selfish, and 
allowing the operation of this motive free play, how has it 
served to bring about the co-operative organization of 
industry which we now observe? Men are selfish and free: 
what influence has bound them to mutual service? 

Let us begin at the beginning and endeavor to trace 
the evolution of industry. Society as we know it is rather 
a growth than a creation. Our ancestors were barbarians 
who moved about in search of food until they were com- 
pelled to settle by stress of circumstances. They had 
neither social, political nor industrial organization of any 
sort. Game and fruits were abundant, and every man by 
slight exertion might have enough. War was their serious 
occupation. When however, population increased in this 
or that favorable locality, a change was inevitable. The 
hunter became the herder, the gatherer of wild fruits the 
cultivator of the soil; and after a time settlements were 
formed which prospered or languished according to the 
habits of the people and the resources of the country they 
inhabited. If they thrived, others envied them and disorder 
ensued which compelled the adoption of means of defense. 
So places of refuge were established and in the course of 

12 



time these places became walled towns, or castles. Men 
were forced into closer union and mutual dependence by 
constant stress from without; and to meet these new 
conditions industry had to be modified. The dweller in a 
town was unable to produce his food and was therefore 
compelled to earn it in some other manner. Observing the 
needs of the country-man, he set himself to making tools, 
or weaving cloth, or dressing leather; and these products 
he exchanged for what he wanted. In a little while the 
advantages of a divided labor became evident. Better 
clothing and better leather were the results of acquired 
skill, and the farmer, being relieved from the trouble of 
making these things, produced more grain. Communities 
therefore thrived and increased in power, and order was 
extended farther and farther. Little states and communi- 
ties began to trade with each other, each availing itself of 
its own resources and devoting its energies to the work 
it could do best. The South traded with the North, the 
East with the West, and the argosies of commerce en- 
circled the known world. 

In the light of history it is evident that selfish men 
began and continued to co-operate because they found 
co-operation to be advantageous to themselves. They got 
more for themselves by producing goods for others than 
they could get by working for themselves only. Let us 
understand this result clearly. Its explanation is simple. 

No man can be good at all trades. Practice makes 
perfect. The skilled workman can produce more in a given 
time than the unskilled. If a man can make a hat and a 
pair of shoes in one day, he will be enabled by the practice 
of one or other trade to make three hats or three pairs of 
shoes in the same time. Where therefore A makes shoes 
only and B hats only, the daily product of their divided 

13 



labor should be three pairs of shoes and three hats as 
against two pairs of shoes and two hats. By exchanging a 
hat for a pair of shoes each will have what he needs and a 
hat or a pair of shoes besides, which he may use to gratify 
other wants. Specialization without trade is fruitless; with 
trade it is beneficial precisely in proportion to the increased 
product resulting from a divided industry. 

Selfishness pushed men into co-operation. Its influence 
was inexorable. Men seemed free but they were not so. 
Formerly they were compelled to do what seemed advanta- 
geous to their masters; some were forced to fight and some 
to furnish food. The Romans assumed that the state 
could not safely leave to every man the choice of his 
occupation, and therefore compelled each to follow the 
trade of his ancestor. A blacksmith's son was bound to 
be a blacksmith. By the law of England, men were serfs 
or villeins or artisans according to the accident of birth. 
In the cities guilds were established and exclusive privi- 
leges were conferred upon them in order to encourage 
crafts deemed useful to the state. Slowly and unconsciously 
in the course of a long period of time, as the result rather 
of the stress than the instruction of experience, we were 
forced away from slavery into the system which now 
prevails. Today men are constrained by economic laws. 
We allow them freedom because we no longer fear it. 
Try as they may, they cannot thrive save by co-operating 
with their fellows. Meaning to work for themselves alone, 
they must work for others. 

The evolution of a co-operative industry is inevitable. 
Society is as selfish as the individuals who compose it. 
It will not let any man thrive who will not serve. It 
depends upon labor for all that it needs, and therefore 
encourages efficient labor and discourages inefficient. Where 

14 



two are engaged in the same business and one can produce 
easily and cheaply and the other with difficulty and at 
great cost, the former is more useful to the community: he 
can sell for less. So it encourages him, and discourages 
the other, by buying from him. If it were not for this 
correction, industry would fall into decay. The cost of 
goods must be less than the price paid for them in order 
that a selfish man may be induced to make them; but the 
goods must be worth to the community more than the cost 
of making, in order that its resources may not be wasted. 
He who spends ten dollars in making goods worth eight, 
has wasted two dollars and hurt both himself and others. 
He has in fact become a consumer rather than a producer 
of goods. Competition and the selfishness of the community 
prevent this waste by continually operating against ineffi- 
cient labor. 

Trade, which distributes goods, is guided by like in- 
fluences. Money does not obviate all the inconveniences 
of trade, for notwithstanding its use the producer and 
consumer must still be brought together. The merchant 
is the marketer of goods: he knows where they are cheap 
and where dear, where abundant and where scarce. The 
more diversified industry is, the greater the need of trade. 
New England is a manufacturing community; Kansas 
raises corn. A merchant transports grain to the manu- 
facturer and shoes and clothing to the farmer; and in order 
to do so profitably must be familiar with the needs of each 
locality. His success depends upon his intelligence. If he 
carries dear goods to a cheap market, he does no good to 
the community and its punishment is relentless. Where 
several engage in the same trade, he who offers goods at 
the lowest price is preferred to him who charges more; 
and so by its discriminating buying society compels effi- 

15 



cient service and brings about an advantageous distribu- 
tion of goods. Trade like production is regulated by the 
law of supply and demand and controlled by competition; 
and all of those engaged in it must render a needed service 
at least cost in order to thrive. 

So men choose their own occupations, manufacturing 
or trade as they prefer, but their prosperity depends 
always upon the need for and efficiency of their service. 
Competition is incessant, and under its constant stress 
every man is forced to do what he can do best. 

Such in brief, is the origin and evolution of our present 
plan for distributing the work of the world and rewarding 
industry. It is by no means a perfect plan, since it depends 
upon the intelligence as well as the selfishness of men and 
not all men are competent to do all sorts of work. Never- 
theless the plan is superior to any that could be devised 
by the wit of man. It allows opportunity to ability, stimu- 
lates industry by rewarding it, induces thrift, and so pro- 
motes the welfare of the individual. It tends also to 
cheap production and just distribution of the right sorts of 
goods and therefore promotes the welfare of the commu- 
nity. It is not only profitable to the worker and the 
community, but it is better suited to our free and inde- 
pendent character than those enforced methods of co- 
operation which were formerly tried. But being free, we 
must accept the consequences of our own infirmities, and 
we will be apt to accept them without repining if we remem- 
ber that the needs of the community are paramount and 
that we should yield the better job to the better man. 
If the system does involve an uneven distribution of 
goods, it is because men vary in intelligence, in zeal and 
in industry and that rewards are apportioned in such 
manner as to encourage the best rather than the worst sort 

16 



of service. If men suffer under it, their afflictions are the 
result of their own demerits and are imposed not by any 
tyrant but by a universal law which is benign, corrective 
and indispensable. There is no captain of industry with 
arbitrary power. The employer is an humble servant of 
society, forced to do its will and promote its prosperity by 
compelling influences which cannot be evaded; and so is 
the employe. By these laws, private selfishness is com- 
pelled always to be subservient to the general good. 

The effects of such a free plan upon the prosperity of 
those engaged in industry can be inferred from what has 
been said. Yet as a particular explanation of a special 
fact is apt to be more instructive than a general explana- 
tion of many, it is proper that I should discuss wages, 
profit and interest, and endeavor to show how the products 
of a particular co-operative industry are distributed among 
those engaged in it. 

The laborer is free to choose his job, but cannot fix his 
compensation. What law or influence fixes his wages? Is 
it an error to assume that the employer cannot arbitrarily 
pay what he chooses; is the theoretical freedom which 
I have described a myth and must one man obey and 
another govern and reward according to his caprice? These 
questions lie at the root of the dissatisfaction which has in- 
duced the formation of unions. They should be clearly 
answered. 

The factors of wealth are the workman, the director 
or employer, and the machine which may for convenience s 
sake be called capital. That their united prosperity 
depends primarily upon the results of their co-operation, 
upon the amount of wealth produced by it, ought to be 
evident. If a hundred men live upon an inaccessible island 
and depend upon what they produce for existence, their 

17 



prosperity must depend upon what and how much they 
produce. If they produce Httle, they will have little; if 
the common stock is great, they will have more collec- 
tively. How the stock should be distributed is a question 
by itself; but unless enough is produced there will not 
be enough to go round, however the distribution may be 
effected. Wages cannot be high, however they may 
be fixed, if the wealth or fund out of which they must be 
paid is small. 

The laborer therefore is as much concerned as the 
employer in promoting by every means within his control 
the efficiency of the industry in which he is engaged. 
Such efficiency depends not only on himself but upon the 
intelligence of the employer and upon the capital resources 
which he can command. The employer must study the 
markets and ascertain what the community needs, how 
much the goods cost and what he can sell them for. The 
capitalist provides the tools and machinery, the raw 
material and the wages which must be paid during the 
making and distribution. Each factor is indispensable and 
helpful. So far as the actual production is concerned, 
capital is more influential than either of the others. With- 
out a machine a man can make so much; with it he can 
make five times as much. Quantity is of first importance. 

How, in the light of these considerations, should the 
fruits of the joint enterprise be distributed? Justice 
requires that each factor should be paid in proportion to 
its contribution to the result. The distribution of goods 
is roughly accomplished under the free and spontaneous 
plan which is now established. Its actual operation is 
controlled by what is called the law of supply and demand, 
but back of that law is a subtle and abiding principle which 
I shall presently explain. 

18 



Wages, profit and interest depend then primarily upon 
the abundant production of the right articles. To produce 
little or to produce the wrong articles is to impair at once 
the prosperity of the community, the workman, the 
employer and the capitalist. Every one has observed that 
men seem to be prosperous and depressed at the same 
time: the factories are busy when trade is brisk, and trade 
is brisk when wages and profits are high. 

Wages, profits and interest are therefore earned and 
paid by the industry, and except they be so earned they 
cannot be paid. Assuming that all are earned, what con- 
trols the relative part of each? Laborers think the em- 
ployer pays and fixes wages; and the employer thinks the 
labor union fixes them. The truth is that neither can 
control. Where a man can get five dollars a day he will 
not work for three, and where an employer cannot make 
a profit at the wages demanded he will stop his enterprise. 
Neither controls the other, each is subject to the same 
compelling influence. Neither can make more than he 
earns, nor less. However benevolent the employer may be, 
he cannot raise wages above those earned. If he tries to 
pay high wages without some compensating service, he 
must charge high prices, and these the community will 
not tolerate where the goods may be bought for less. 
Neither can the employer pay less than the general rate, 
for he cannot compel free men to accept less than they 
are worth and can get elsewhere. The case of the "sweater" 
is peculiar. Each year many ignorant foreigners land at 
the port of New York who know nothing of our language 
and industrial conditions. They must work in order to 
live, and they offer their services in competition with each 
other to the special trades for which they are fit, such as 
sewing and garment making. They are in fact never free 

19 



and afford not a refutation of the law under consideration 
but an example of the pathetic condition of the incompe- 
tent. Those crafts which require the highest skill are best 
paid. A few years ago an automobile manufacturer tried 
a significant experiment which seemed to show that the 
employer might pay such wages as he desired. He an- 
nounced that he would pay not less than five dollars a day. 
His subsequent success was due however not to his benevo- 
lence but to the character of the special workmen whom 
he enlisted in his service. The wages offered were so high 
that he was free to choose the best, and he rigorously 
exacted of them one condition, namely, that each must 
earn his wages. He could not have so increased the wages 
of incompetent men. He increased the efficiency of his 
factory by stimulating the zeal of selected mechanics and 
by means of their co-operation realized a greater output 
at less cost than ever before in a like industry. His men 
earned their wages. 

Let me assume what we so rarely observe: that an 
employer is excellently wise, that he knows trade and his 
business, that his credit is good because deserved, that he 
is emancipated from all injurious restraints, that he is 
surrounded by skillful workmen eager to assist, and com- 
mands the best machinery known to the craft. What 
must be the consequences? Will not the goods produced 
by such zealous and intelligent co-operation fulfill all the 
conditions of success as we have outlined them: quantity, 
the right sort, cheapness? Will not such an enterprise, so 
conducted, drive to the wall all competitors who lack 
similar advantages, or force them to equal efficiency? 
Will not such competition tend to the welfare of the whole 
community, and ultimately realize for everybody engaged 
in industry a corresponding advantage in the abundance 

20 



and cheapness of all goods? And will not the laborer get 
his share in the ease with which he may satisfy his wants? 
Goods are made for his consumption, and he cannot fail 
to profit by their abundance and cheapness. By con- 
tributing much to the welfare of others, he promotes his 
own; and so men thrive by mutual service. 

Why one man gets more pay than another is of easy 
solution. The hatter who makes one hat a day is paid less 
than he who makes two: the man who rakes the fires, less 
than he who controls the engine. The superior work gets 
the better wages, and by superior I mean not less un- 
comfortable but more difficult and more needed or more 
productive. 

The sum of these considerations is this: wages depend 
upon the product of labor, and that product upon the 
efficiency of labor and the intelligence of the manager. 
If you wish to find a prosperous country where high wages 
are paid, seek that which uses most machines and employs 
the highest intelligence. America is that country today, 
not because we have protective laws and labor unions, but 
in spite of them. We produce more wealth per capita than 
any nation in the world and therefore have more to 
distribute. 

Profits depend upon like considerations. In order that 
they may be earned the factory must produce goods at a 
cost which is less than the market price. The employer 
must compete with all others in the same business, and his 
success depends upon his ability, all other things being 
equal. The risks involved in the enterprise rest on him; 
he must pay wages and interest whether they are earned 
or not. In time of prosperity he must accumulate enough 
for adversity. If his income seems at times great, his 
losses are sometimes great. His fortune will ever depend 

21 



upon his intelligence and resources and be proportionate 
to his service. He cannot be overpaid nor underpaid, in 
the long run. If in a special industry he earns too much, 
others have an inducement to compete with him. If he 
earns little, he will receive little. If he is unfit for his job, 
nothing can save him. That on the whole he earns what he 
gets is evident to everyone who considers the co-operative 
experiments which are from time to time tried. No in- 
dustry controlled by a committee of workmen has ever 
been able to long survive. It cannot compete, lacking the 
requisite guidance. 

Interest is that part of the output of a factory which 
is paid for the use of the capital employed. The lender as 
a rule exacts security of some sort, and as his risk is small 
his reward depends upon the average cost of capital in 
the money market, or on what is called the supply. The 
credit of all men is not equal. One deserves more than 
another, but every borrower is dependent in some degree 
on the money market, and so is every lender. Interest 
rates fluctuate from time to time in response to a fluctu- 
ating demand. An active trade requires more capital than 
a dull trade, and earns more. Rates are therefore low 
when business is dull and high when it is active. They 
are still higher in time of trial, as when business is perilous 
and unusual risks are to be confronted. In order to pay 
interest, the industry must earn it. Interest is governed 
by the influences which control wages and profit. Capital 
embarked in an unuseful enterprise cannot earn and 
cannot pay a return. One capitalist must compete with 
another, and the results of this competition are felt in the 
money markets. No one can arbitrarily fix interest rates. 

It seems therefore that wages, profit and interest cannot 
be arbitrarily fixed by anybody. All are controlled by 

22 



economic influences which none can disregard. Primarily 
the welfare of the community depends upon the abundance 
of goods needed. If everybody is intelligently employed 
and the right goods are produced abundantly at little cost, 
the community thrives and everybody in it thrives who 
will do his part. Wages and profit will be high because the 
rewards of all industry are abundant and cheap. Interest 
will be low because capital will be cheap. If on the other 
hand few goods are produced at great cost in human effort, 
the community and all comprising it will languish in 
poverty. There will be few goods, and wages and profits 
will tend to a minimum while interest will tend to rise. 
The fruits of a co-operative labor are not distributed 
arbitrarily but in accordance with a just and useful economic 
law which secures to each worker a reward which corre- 
sponds with his service. 

We are now brought face to face with that private 
property which we set out to consider. It appears from 
what has been said that wealth is now produced by a 
divided but co-operative labor, yet that its distribution is 
unequal. There is a widespread notion that such dis- 
tribution is unjust because it is unequal. The social 
unrest which afflicts us results from the conviction that 
somehow one man has received more and another less than 
is due to him. That there are rich men and poor men; 
that the workman receives less than the employer; that 
some men enjoy large incomes without doing any labor; 
no one can deny. Do these facts justify the dissatisfaction 
which is so frequently expressed? 

The question involves moral as well as practical con- 
siderations. If what seems right results in wrong, it 
cannot be justified on moral grounds. Private property 
rests upon tradition. From the beginning it has been 

23 



assumed that men have a natural right, that is, an obvious 
and just claim, to goods produced by their own efforts. 
If I make a hoe, it is mine by the common opinion of 
mankind. My ownership can result in injury to none. 
Is this the case which confronts us? Are men now claim- 
ing what belongs to them by natural right; is their parti- 
cipation in the fruits of a co-operative labor proportionate 
to the actual contribution of each to the production of 
such goods; ir inequality just in the sense that my having 
more does not result in another's having less; or are some 
poor because others are rich; — these are the questions 
which must be answered. 

I have endeavored to fully explain the advantages of 
co-operation and to trace these advantages to the increased 
efficiency of the specialized or divided labor which now 
characterizes all industry. Men work for each other 
because it is more profitable to do so than to work for them- 
selves. By dividing labor they make more goods, and the 
increment in the output is shared by means of trade. 1 
have altogether failed in this essay if it is not obvious that 
workers thrive in proportion to their service. If this be 
true, then the wealth which a man derives from his work, 
is his own by the common opinion upon which every sort 
of property must ultimately rest; and he can do what he 
wishes with it: for we cannot allow him a property in the 
goods he creates and deny him a property in those which 
another creates and gives him in exchange for his own. 

Reason however has very little to do with our notions 
of property. If we envy a man of greater ability, it is 
natural to deny his superiority; if we have less than another 
by deserving less, we may still question his right to more. 
The dissatisfied part of the community will ever find an 
excuse in an accusation. In the present instance however 

24 



the accusation is fortified by plausible considerations which 
even a just man finds it hard to be rid of. We have recently 
invented an ugly word — "profiteer" — which contains such 
considerations. Men hate another's profit instinctively 
because they believe it involves a loss to themselves. No 
one greets the seller with the cordiality which he shows to 
the buyer. Nations fear what is called an adverse balance 
of trade, not because it can be an evil to have an income 
in excess of an outgo, but because they wish a profit which 
they assume is to be derived from selling more than they 
buy. The persistence of this error is so remarkable that 
it is necessary to understand its origin in order to refute it. 

What then is trade; what does it involve; what does it 
result in? If I exchange a pair of shoes for a hat, I am 
trading; if I sell a pair of shoes and buy a hat, I am trading. 
The two transactions are identical: in the former I barter 
one commodity for another and in the latter I do the same 
thing by means of a medium of exchange called money. 
That the trade, however conducted, involves a profit or 
advantage to both parties, ought to be evident; yet while 
men admit the mutual profit of barter, they deny that 
such profit is mutual where goods are bought and sold. 

Let us consider the two cases. By a divided labor 
more hats and more shoes are produced than where both 
articles are made by one man. Where, as in the case 
assumed, three hats and three pairs of shoes are made 
by A and B respectively as against a hat and a pair of 
shoes which each might have made independently, A may 
have two hats and one pair of shoes and B two pairs of 
shoes and one hat by trading a hat for a pair of shoes. 
If we assume that a hat is worth a pair of shoes, each is 
better oflF to the extent of that worth as the result of 
specialization and trade. To such a trade neither can be 

25 



regarded as buyer or seller, for each is both, and both 
realize the same profit. 

Now let us assume that the hatter and shoemaker use 
money and sell and buy instead of bartering their goods. 
Each starts with say $5.00 and three articles, and each 
buys from the other a hat or a pair of shoes for $5.00. 
After such a trade has been effected, each will have $5.00 
and precisely what he would have had if the shoes had 
been bartered for the hat; in other words, the profit realized 
by buying and selling is precisely the profit realized from 
barter. 

In the case assumed, hats and shoes are reckoned at 
equal value. If a hat cost $3.00 and a pair of shoes $4.00, 
the problem is a little confused, but the result is the same. 
If each starts with $5.00 and the goods produced by 
himself, after selling and buying a hat or a pair of shoes 
the hatter will have two hats, a pair of shoes and $4.00; 
and the shoemaker will have two pairs of shoes, a hat 
and $6.00; — or to express the account in dollars only: 

Hatter's Account. 



Before trading. 


Cr. 3 hats costing $3 each = 


$9. 






Cash on hand 


5. 




After trading. 


Cr. 2 hats costing $3 each = 




$6. 




1 pair of shoes at $4.00 




4. 




Balance of cash 




1. 




Price received for hat 




3. 



$14. $14. 



26 



Before trading. 
After trading. 



Shoemaker's Account, 
^r. 3 pairs of shoes at $4. 

Cash on hand 
Zr. 2 pairs of shoes at $4. 

1 hat, costing $3. 

Balance of cash 

Price of shoes 



$12. 
5. 



$8. 
3. 
2. 

4. 



$17. $17. 



Let us now assume that each values his commodity at 
$1.00 more than it cost, and sells at that profit. 



Hatter's Account. 



Before trading. Cr. 3 hats at $4. = 



After trading. Cr, 



Cash on hand 

2 hats at $4. = 

1 pr. of shoes costing $5. 

Price received for hat 



$12. 



$8. 
5. 
4. 



$17. $17. 



Before trading. 
After trading. 



Shoemaker's Account. 
Cr, 3 prs. of shoes at $5. = 

Cash on hand 
Cr. 2 prs. of shoes at $5. = 

1 hat costing $4. = 

Balance of cash 

Price received for shoes 



$15 
5 



$10. 
4, 
1. 
5. 



$20. $20. 



These examples show that barter itself does not increase 
nor diminish the wealth of either party in any real sense. 
In the case last assumed, the shoemaker created a greater 

27 



value, measured in money, than the hatter; but after 
trading each had precisely as much as he started with. 
They exchanged one sort of goods for another, but the 
values exchanged were equivalent. Each got what he 
needed in exchange for what he made; and this is the 
whole advantage involved in the trade. 

The nominal profit as distinguished from such an 
advantage, which seems to result from trade, is deceptive. 
In order that tnis fact may be distinctly understood, let us 
assume that each of the traders sells the whole of his goods 
to the other at a profit: 

Hatter's Account. 



Before trading. Cr. Cash $15. 

3 hats cost $3. valued 

at $4= 12. 

After trading. Cr. Cash from 3 hats $12. 

3 pr. shoes costing $5. = 15. 

"$27^ $27" 

Shoemaker's Account. 
Before trading. Cr. Cash $15. 

3 pr. shoes cost $4. valued 
at $5.= 15. 

After trading. Cr. Cash from 3 pr. shoes $15. 

3 hats valued at $4. == 12. 

Cash balance 3. 

$30. $30. 

We are deceived by what seems a profit because the 
shoemaker and the hatter rarely do business together. 
Each sells in the open market and buys in the open market. 
The business of the merchant is to assemble goods in order 

28 



that they may be exchanged, and if we assume that the 
merchant makes nothing out of his service the results of 
a trade made through him seem to be as follows: 





Hatter's Account. 




Before selling. 
After selling. 


Cr. Cash on hand 
3 hats cost $3 = 

Cr. Cash on hand 

3 hats sold at $4. = 

Shoemaker's Account. 


$15. 
9. 

$15. 
12. 

$24. $27. 
Profit $3. 


Before selling. 
After selling. 


Cr. Cash on hand 

3 pr. shoes cost $4. 

Cr. Cash on hand = 

3 pr. shoes sold at $5. = 


$15. 
12. 

$15. 

15. 

$27. $30. 

Profit $3. 



Each therefore seems to have made a profit of $3.00. 
The transaction however is incomplete, for in the case 
assumed each buys the other's goods. 

Hatter's Account. 

Before buying. Cr. Cash $15. 

Proceeds of 3 hats 

sold at $4. 12. 

After buying. Cr. 3 pr. shoes bought at $5. $15. 

Balance of cash 12. 

$27. $27. 
29 



Shoemaker's Account. 

Before buying. Cr. Cash $15. 

Proceeds 3 pr. shoes at $5. 15. 
After buying. Cr. 3 hats bought at $4. $12. 

Balance of cash 18. 



$30. $30. 

It will be observed that as a result of the completed 
transaction ths hatter has lost $3.00 of his cash and the 
shoemaker has added $3.00 to his. The transaction seems 
therefore to have been profitable to the shoemaker and 
unprofitable to the hatter; yet it is quite evident that 
neither is worse or better off than at the start. The hatter 
started with $15.00 of cash and 3 hats worth $4 each, or 
$27.00; he ended with $12 of cash and 3 pairs of shoes 
worth $15, which equal $27.00. The shoemaker started 
with $15 of cash and 3 pairs of shoes worth $15; he ended 
with $18 of cash and 3 hats worth $12, which make $30.00. 
In other words, the shoemaker started with more than the 
hatter, and ended with more. The difference between the 
assumed value of three pairs of shoes and three hats was 
$3.00, and as the hats and the shoes were exchanged, the 
hatter paid to the shoemaker $3.00 to settle the difference, 
but the hatter lost nothing by such exchange; neither did 
the shoemaker gain anything, except the advantage of 
getting what he wanted by exchanging one sort of wealth 
for another. I mean no more than that trade can result 
in nothing but the substitution of one value for another 
equal value. The prosperity of every producer of goods 
depends not upon something derived from another, but 
upon something produced by himself. As between two 
hatters, he who produces twice as many hats in a given 
time as the other, will have twice as many to exchange for 

30 



what he needs. His income cannot be greater than his 
outgo, nor less. Trade does not enrich a producer of 
goods: he is enriched by his own industry and zeal and 
intelligence and in proportion as these faculties are em- 
ployed in production. 

Up to this point the problem has been simple. We 
now reach a new perplexity which must be disposed of. 
In the case put the shoemaker produced $3. more of what 
we call value than the hatter. This excess value may be 
due to either of two causes: the shoemaker may work 
harder, or he may produce an article for which there is a 
less supply. In the latter event his greater prosperity 
seems to be due not to his own industry, but to another's 
need. Assuming this to be true, is his prosperity unfair, 
does it involve an injury to the consumer? Obviously 
not. To make what no man needs is to serve nobody: to 
add to an abundant supply other articles of the same 
sort is to render an unneeded service: to supply what is 
necessary and lacking is to render the best sort of service 
and to deserve a corresponding reward. The value of every 
article depends upon the demand for it. If 1 create a 
value for which there is a great demand, I create a greater 
value than he who produces that which is less needed. 
I do more good than he, and my prosperity represents not 
another's loss but the good I do him. I am still paid 
according to my service. It is never true that profits are 
derived from trade by one man at the expense of another. 
Each gets what he gives, and gives what he gets; and the 
word "profiteer" contains in a general sense a general 
delusion. 

I have been discussing barter only, as that sort of selling 
and buying which results in immediate exchange, in order 
to show what it involves and what good results from it. 

31 



Trade however is never so simple as in the cases assumed. 
Where labor or industry is minutely divided as at present, 
one producer of goods rarely deals directly with another. 
All goods are marketed by intervening instrumentalities 
which serve not to bring producer and consumer together, 
but to enable them to exchange goods without such con- 
tact. The most important of these instrumentalities is 
money. 

Money is a commodity precisely in the sense that wheat 
is a commodity, but it differs from every other commodity 
in one important particular, namely: the owner can ex- 
change money for any commodity whatever; every other 
commodity is exchangeable for money only. For this 
reason we first barter what we make for money and then 
barter the money for what we need. It is obvious that by 
such mediate barter, which we call selling and buying, we 
neither add to nor diminish the value of what we give 
and get. We exchange one value called goods for another 
equal value called money, and then exchange the money 
for another equal value in goods of another sort. As 
however money is apt to confuse commercial transactions, 
I shall attempt to ignore it wherever possible. 

Money does not avoid all the difficulties of trade. The 
producer of goods must still find some one who needs them. 
As a rule he is too busy to search out the consumer, and 
this task is entrusted to one who makes a business of 
trade. The merchant buys from the producer and sells to 
the consumer. As his service is a necessary one, he makes 
what is called a profit by performing it. 

Let me assume that the hatter and the shoemaker are 
unknown to each other and conduct their trading through 
a merchant. The hatter sells his hats to the merchant, 
and the merchant sells one hat to the shoemaker, another 

32 



to the blacksmith, etc., at a profit. At the same time the 
shoemaker sells his shoes to the merchant and the merchant 
sells a pair to the hatter, etc., at a profit. Whence come 
these profits, who pays them? Does the merchant get rich 
at the expense of others? His profits are paid by the 
hatter and the shoemaker in one sense, but they represent 
a service to each and not an injury. The need of the 
shoemaker was a hat and the need of the hatter a pair 
of shoes. Neither was able to get what he wanted without 
the intervention of another. The merchant is helpful to 
both and is paid by each because he helps each. Both 
are better and not worse off as the result of his service. 

At this point we are again confronted with a fact to 
which I have already referred: one merchant makes a 
greater profit than another. The explanation is identical 
with that already offered. The merchant who sells in a 
cheap market, performs a less service than he who sells in a 
dear market. To transfer goods from a market where they 
are little needed to one where they are greatly needed is 
to deserve a corresponding reward, and this reward is 
proportionate not to the harm but to the good done. 

Such is the service rendered by the merchant. What 
of the banker? Trade cannot be conducted without 
money, and money is sometimes hard to get. The great 
merchant rarely has enough of his own to conduct his 
business. He must therefore borrow from one who has 
money. The banker is the lender. To induce him to 
lend, the merchant must pay part of his profit to the 
banker, and this part is called usury or use money. To 
the imagination nothing is more odious than usury. What 
service does the banker perform? What he lends does 
not belong to him. People who have no use for it deposit 
money in the bank, and the banker, who cannot use it, 

33 



lends to another. Is not his charge unjust; does he not 
get rich without service; does he contribute anything to 
the goods of the world; does he distribute them? 

These questions also should be answered so clearly as 
to leave no doubt. Usury has always been hateful. Christ 
drove the bankers from the temple. For many centuries 
the Church forbade usury. By the common opinion of 
man it has been deemed hateful and hurtful. "The usurer 
is the great Sabbath breaker; his plow goeth on Sunday." 
The Church was right. During many centuries usury was 
an unmixed evil. Men in distress borrowed so much, 
spent it and were then required to pay more. Today 
however usury is quite a different thing. The borrower 
gains by the use of money and shares his gain with the 
lender. The service rendered by the banker is very great. 
He must safeguard the funds left with him, honor all 
checks and keep accounts. If he lends trust funds, he 
lends at his own risk. He must know not only the character 
of the borrower and his resources, but understand the 
business he is engaged in. If he lends for an unprofitable 
enterprise, he will lose his advance. He enables the 
borrower to do what he would otherwise be unable to do. 
If I, being a merchant and lacking money, borrow the 
money, buy goods, move them to a good market and sell 
them at a profit, I can pay my debt and interest and 
have something left for myself. The banker by becoming 
a partner in my service, earns and deserves part of the 
fruits of that service. He does not hurt me, he helps me; 
and I in turn help both the producer and consumer of 
goods by enabling them to exchange what they make for 
what they need. The maker of goods, the merchant who 
markets them and the banker who helps the merchant, 
share alike in the fruits of a divided industry. 

34 



In this instance also there is a difference between 
individuals: one banker makes more than another, but if 
he does, it is because he renders a better or more needed 
service. He who lends a merchant money to buy corn in 
New England for sale in Kansas will not get so rich as he 
who lends money to buy corn in Kansas for sale in New 
England. No banker can thrive who does an unuseful 
thing. If he does or helps to do a useful thing, he earns 
the fruits of his service, and his profit is derived not from 
hurting but from helping another. 

The uneven distribution of wealth is due to salutary 
and useful laws. It is necessary for the welfare of society 
that men should have an inducement to do good and not 
to do evil: to do that which helps along rather than that 
which retards progress. That welfare depends upon the 
plentiful production of the right articles at least cost, and 
their just distribution. Society helps itself by rewarding 
men proportionately to the good they do; and as one 
man does more good than another, it lets him become 
richer than another. The increase in one man's riches 
cannot deprive another of the fruits of his own industry. 
We get rich at the same time. Every man's zeal helps all 
the others. There is no limit to the amount of wealth that 
can be produced. What one produces, he gets. The 
prosperity of one cannot diminish the goods of another. 

The accumulation of wealth by individuals is indis- 
pensable to the community. Accumulated or unconsumed 
wealth is capital, and capital, as I have already explained, 
is most necessary to industry. It affords the tools to work 
with, the machinery, the factory, the raw material and 
wages pending the completion and sale of goods. It does 
vastly more good than it earns in the way of interest. 
If I lend a reaper to a farmer, charging for its use, I save 

35 



him an immense amount of labor and increase his profit 
on his crop. If I lend a machine to a workman, I increase 
his output five or tenfold and receive but a small part 
of such increase for my help. 

The appropriation of capital by individuals cannot 
tend to cripple industry, for it is worth nothing to the 
capitalist unless he employs it for the general good. If 
there are many capitalists, and capital is abundant, one 
must compete with another in his charges, and business 
always goes to him who will lend for least. The right use 
of capital requires very high intelligence: that sort of 
intelligence which is requisite for a banker. To put capital 
into a foolish enterprise is to hurt at once the capitalist 
and the community. It cannot be accumulated without 
service nor preserved without service. The man who 
hoards money is called a miser. He is miserable because 
he serves neither himself nor others. An incompetent 
man who employs it cannot retain it. It is a maxim of 
experience that there are but three generations between 
shirt-sleeves and shirt-sleeves. 

Private property cannot therefore of itself be an evil. 
It enables the possessor to live in comfort and confidence 
and injures no man — unless its possession gives one man 
an unfair advantage over his fellows in that relentless 
competition which I have described. Without capital 
labor lacks two-thirds of its capacity. A man with a 
machine can outstrip it in the race. Have we destroyed 
the equal opportunity to which we should at least aspire, 
by permitting one man to own the earth and appropriate 
all its fruits? How can the newcomer live: what is left 
for him? 

A ready answer to this question may be found in what 
everybody observes: the man with property is continually 

36 



losing it and the man who lacks it is ever acquiring it. 
The country boy who abandons the farm and comes to 
the city thrives because he finds there better opportunities. 

The economic answer rests upon the principle that 
neither personal nor real property can be profitable to 
the owner unless it be made of service to the community. 
We sow crops to sell and thereby feed the community. 
Property is like labor in the respect that it is the servant 
and not the master of society. The man who owns it, 
willing or not, must use all that part which is not necessary 
for his own need for the good of others. Morever, property 
is not more necessary for labor than labor is for property. 
Each is dependent upon the other and the mastery is 
with neither. 

The fundamental error of socialism lies in the assump- 
tion that one man will sow what another may reap. Ex- 
perience is wiser. We allow private property in land and 
goods because we know that only in such fashion can they 
be made available for the general good. The owner who 
seeks his own welfare must do good to others in order to 
accomplish his object. 

I have entered upon all of these considerations to 
show that the free and spontaneous organization of industry 
at which we have arrived after centuries of experiment is 
upon the whole an excellent and beneficial system; as just 
to those engaged in it as to those who depend upon it. 
I have tried to explain why labor became specialized, what 
results followed, how its increased efficiency enured to 
the advantage of the laborer and the community, and in 
what manner those advantages were distributed. 1 have 
tried also to prove that the prosperity of every class 
engaged either in the production or distribution of wealth 
must be the direct and necessary result of the service it 

37 



has performed: to justify private enrichment by the use- 
fulness of capital: and to show that there can never be 
too little wealth to go round because one man accumulates 
more than he needs. 

I cannot conclude without mentioning the causes of 
the prevailing discontent which we are apt to overlook. 
Men assume, why I cannot tell, that wealth consists of 
money. Nothing could be farther from the truth. The 
gold of the United States constitutes perhaps one-fiftieth 
of its wealth. Money is wealth, but it is wealth in the same 
sense that a hoe is wealth. It is a tool of exchange, a con- 
venient measure, an instrument of trade. It contains a 
definite and unfluctuating amount of what we call value, 
with which we measure other values; but wheat and iron 
and every other commodity also contain value, and they 
and other commodities constitute ninety-eight per cent 
of the wealth of the community as against the two per 
cent contained by money. It is true that if one man locks 
up money, he will diminish the general stock, as gold 
cannot be produced as wheat is produced. But it is not 
true that an increase in one man's general wealth dim- 
inishes the wealth of another. Every one is free to pro- 
duce as much as he can, and what he produces for himself 
does not affect what another produces for himself. 

Our industrial freedom is justified by its utility. We 
are free, but free only to serve. If we fail to serve we are 
punished relentlessly; if we serve, we are rewarded. What 
we save is useful to ourselves and to others. Wealth is 
unequally divided because all men are not alike. Some 
know what to do and how to do it and are willing to work. 
Others are ignorant or incompetent or idle; and each reaps 
what he sows. 

A slavish system would be altogether less profitable to 

38 



the individual and to the community. If we say "to each 
one according to his need and from each according to his 
power," we make the bad to be tyrant over the good, 
diminish the product of industry and impair the prosperity 
of all. What I will not do freely for myself I cannot be 
compelled to do efficiently for a master. 

If we use these general considerations to test the utility 
of the various expedients which are from time to time tried 
for the redress of grievances, we shall observe that most 
of them are not only hurtful to the promoters but to 
everybody else. 

The labor union, while it has many worthy objects, 
commits a grievous blunder when it attempts to curtail 
production in order to provide places for more men. Let 
us assume that a proper output of shoes per day is five 
pairs: to compel a man to make no more than three is to 
reduce his wages; for wages, as we have seen, depend upon 
the amount of wealth produced. Trade adds nothing to 
the value of such product. Restricted output involves the 
inversion of the present industrial system. We now divide 
labor in order that it may produce more. If after dividing 
it we produce less, the advantages of specialization will 
be impaired or lost. A restricted production cannot be 
good for the community unless to lack what we need be a 
blessing. 

The laborer is deceived by the apparent results of re- 
stricting output. He observes that more men are required 
to do the same amount of work and thinks that therefore 
the laboring class is better off. This delusion is as old 
as ignorance. The Chinese still cherish it and earn 
about seven cents a day. Wages are paid in money. If 
they seem high, men are satisfied. Yet they may seem 
high and be low. Wages are earned by labor and paid in 

39 



the fruits of labor. If labor be efficient and there is much 
to go round, wages will be high. If we produce little, we 
can get little. Money wages are always deceptive. To 
receive $10 a day in money and be able to buy for it but 
$2 in value, is not to prosper. Cheap goods mean high 
wages, dear goods low wages. If all labor shall zealously 
produce as much as possible at least cost, the exchange 
value of labor measured in goods will be high. If all 
scamp their jobs and make as little as possible, the exchange 
value of labor measured in goods will be low, however high 
the money wages may seem. The common stock of goods 
being large or small as we make it, so shall we have much 
or little as we choose. Something can never be got for 
nothing; more cannot be got out of less, even through the 
intervention of money. 

All efforts to raise wages in disregard of economic law 
must result in failure. An industry can pay so much and 
no more. If it earns so much and wages demand the whole, 
the employer will not work and the capitalist will stop 
lending. The most effective check upon abnormal wages 
is that which results from the injury they attempt to 
inflict upon the community. Earned wages represent a 
service rendered; unearned wages, a wrong done. No 
man can compel another to pay what that other cannot 
afford. If I get for my labor $5.00 a day, 1 cannot pay 
another $10.00 a day. Rising prices kill trade, and ab- 
normal wages tend to high prices. A boom always collapses, 
and wages must ultimately conform to the economic law. 

The Union seems unable to understand the mutual 
dependence of all classes engaged in co-operative industry. 
The man who makes shoes will not remember that others 
are engaged in making hats, and that neither can gain an 
unfair advantage without hurting him on whom his own 

40 



prosperity depends. The hatter needs shoes, the shoe- 
maker hats; and each must deal fairly with the other, or 
not at all. Economic selfishness which seeks the rewards 
of service is quite a different thing from that disorderly 
selfishness which attempts spoliation. The Union may 
secure an immediate advantage, but such advantage will 
be temporary. 

The employer is sometimes as foolish as the laborer. 
He too tries by restricting output to control prices, or to 
artificially maintain them by pools and conspiracies; but 
it is as impossible for him to succeed as for the laborer, 
and for the same reason. The community which earns so 
much can pay so much and no more. What is called over- 
production deceives us. It does not mean that too many 
goods have been produced but that the public cannot pay 
the price demanded. A manufacturer may make too 
many $5 hats, but he cannot make too many hats while 
men need them and will pay $2 for them. 

The general propensity of every industry and of all 
engaged in it to regard its welfare as something special 
and apart from that of others has defeated and perhaps 
always will defeat the plainest doctrine of political economy 
and lesson of experience. Laws are still in force which 
pretend to satisfy this universal craving. They are called 
ingeniously "protective" laws. They protect A against B 
and B against A, and both are satisfied. 

Perhaps the most interesting manifestation of this 
delusion is to be found in the opinion of the business world 
with respect to foreigners and to what is called the balance 
of international trade. People say the balance is "favor- 
able" when more goods are sent out than are brought in. 
What nonsense! What is trade? Is it not the exchange of 
goods for goods? Is the balance "favorable" when more is 

41 



given for less? The truth is, the balance must be even: it 
cannot be either favorable or unfavorable. 1 do not deny 
that for a century the United States has sent more goods 
to England than it has received from England; but is the 
balance therefore uneven? Certainly not. We have been 
for a century a debtor nation: we have borrowed England's 
capital to help our industries. We therefore ship her goods 
for goods and also goods for the use of her capital. The 
balance has always been even. 

The vague notion back of the words "favorable " and 
"unfavorable" is an apprehension inherited from our 
ancestors that if we buy more than we sell we shall lose 
money. One simple fact should expel this delusion. Not- 
withstanding that our exports to England have exceeded 
our imports from England by a great sum during a whole 
century, England has lost no money by this "adverse" 
balance: she has, on the contrary, during the whole of 
that time been the money market of the world. How can 
this fact be reconciled with the prevailing delusion? Eng- 
land has become and remained rich because her income 
has been greater than her outgo — not because it has been 
less. The United States has also been prosperous not 
because her outgo has been greater than her income, but 
because the capital borrowed has been employed in in- 
dustry and we have not only paid for its use but profited 
by its use. 

It is true that under certain circumstances an adverse 
balance of trade must be corrected by the export of money; 
but what is money for? If we send it out, it is because we 
wish something we purchase with it. Does disaster there- 
fore threaten us? No, because as soon as the export of 
specie tends to deprive a country of a necessary medium of 
exchange, the value of money for domestic exchange must 

42 



rise; that is, its purchasing power in the exporting country 
must increase, and the direct and necessary result of such 
advance will be to draw money from abroad. Money goes 
to its best market as instinctively as wheat or any other 
commodity, and it is incredible that it shall long be lacking 
in a commercial country where it will buy most. 

One other obsession which works great mischief in the 
world deserves consideration. The poor man is pleased 
when heavy taxes are imposed upon the rich; and the 
whole art of government now consists in predatory taxa- 
tion. What is a tax; who pays it? It is a toll levied upon 
industry, and it is paid by labor. Although collected in 
what is called money, yet the money is immediately spent 
for goods and the goods so bought are withdrawn from the 
general stock and consumed by the tax-gatherer. It can- 
not be advantageous for the poorer members of the com- 
munity that many goods should be consumed by those 
who produce nothing. The hive may support so many 
drones, but it cannot be a blessing to the worker bee to 
endure such a burden. If we assume that one half of all 
the wealth produced by everybody is appropriated by 
the State, is everybody or anybody better or worse off as 
the result of such spoliation? When we tax, we appropriate 
goods. Goods must be produced by labor. Who then 
pays the tax ultimately? It may fall first upon a bank 
account, but in the end it falls upon the producers of 
wealth. 

Money may or may not be the root of all evil, but it is 
certainly the root of much bad thinking. From a false 
notion of its character and function flow many delusions: 
as that "protection" protects; that trade can have an un- 
favorable balance; that the seller makes something out of 
the buyer; or that one man's riches cause another man's 

43 



poverty; — and it is hard to be rid of these obsessions. We 
must rennember constantly that industry is divided because 
a specialized labor is most productive; that the benefits 
of specialization cannot be realized save by trade; that 
trade is good for the buyer as well as the seller; that it 
involves the exchange of goods for goods, or services for 
services; that what interferes with trade impairs prosperity; 
that money is a convenient medium for the exchange of 
goods and nothing more; that what we carry into trade we 
get out of trade; and that the prosperity of all classes 
depends upon the industry of all classes and cannot be 
otherwise realized. 

Private property is not the fruit of wrongdoing, but of 
service and self-denial. Its accumulation hurts no one: 
it helps every one. It provides comforts and luxuries, 
which all men should wish to have. It provides also the 
capital without which industry would be reduced to 
penury. The hate which it inspires is undeserved. 

I fully realize that this brief discussion of a great sub- 
ject cannot convince the unthoughtful man, but it may 
be useful to those who seek to understand what is con- 
fused. There are bad men in industry, captains whom we 
may justly call buccaneers, and these I have not discussed. 
I have confined myself to the normal sort of industry and 
not to thieving, because the latter is too fugitive and 
various for discussion. There are degrees of selfishness. 
That sort which 1 have treated is the sort which is common 
to all men, and I have tried to make it respectable by 
showing the good it does and must do in order that it 
may prosper. 

In conclusion I venture to reiterate the propositions 
which I have endeavored to establish. 

44 



TTie object of industry is to produce abundantly and 
cheaply the goods of which society has need. 

In the accomplishment of this object each individual 
may produce all of his own goods, or specialize his labor 
and produce particular goods to be exchanged for what 
he needs. 

Of these two methods specialization is better because it 
conduces to skill and efficiency and therefore to greater 
production. 

The organization of industry may be either arbitrary 
or free; the State may direct labor and distribute goods 
arbitrarily, or each individual may be permitted to do 
what he likes and trade where he likes. 

The free system is preferable because selfishness is a 
better spur to industry than altruism; freedom is better 
than slavery, and private intelligence is more trustworthy 
than official supervision. 

The free system cannot result in injury to anybody, 
because it is controlled by economic laws which none may 
disregard. Under it, selfishness can thrive only by doing 
good. The man who makes in order to sell must make 
what someone else needs and offer it on satisfactory terms 
for what he himself needs. The selfishness of all guide.s 
corrects and restrains the selfishness of each. 

Where industry is divided, it is advantageous to all 
individuals that all goods should be abundant and not 
scarce; for the purchasing power of special goods depends 
upon the abundance of all other goods, that is upon the 
price which must be paid for them. 

Trade, which is indispensable to a divided industry, is 
beneficial to all engaged in it, although each gets from 
trade what he carries into it and no more. All share in 

45 



the fruits of a divided labor, but none gets any advantage 
at the cost of the other. Trade should therefore be free. 

The worst enemy of society is he who strives to make 
goods scarce and high or to curtail the markets for them. 

Private property is property produced by work and 
accumulated by self-denial. It is useful to the owner only 
when employed in aid of industry. It is the source of the 
capital, or tools, machinery, etc., which are indispensable 
to industry. Land is given to individuals in order that it 
may be made productive. 

Tlie prosperity of one individual cannot impair the 
prosperity of another, for a man can become rich only by 
helping and not by hurting others; and his enrichment 
cannot diminish their riches. 

The free industrial system under which we live is ex- 
cellent because it tends to the production of much wealth; 
to the distribution of such wealth to each according to his 
contribution; to zealous industry; to fair trade; and to 
mutual service. 

Political economy is in reality the science of service. 



46 



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